I’m a first-time buyer. Should I put down more than the minimum?

The down payment is a big question on the minds of many first-time home buyers. Minimum down payment requirements are designed to make homeownership accessible to more people, and they certainly do. But what if you have the option of putting down a larger amount? Is more better? How would less be a benefit? 

If you’re having trouble weighing the pros and cons of making more than a minimum down payment, here are a few fundamental considerations.  

The Unexpected

The first thought is what you might not have thought of yet. That is, it takes new homeowners a little bit of time to become familiar with the ongoing expenses of having a home. Appliances break, pipes leak, and every once in a while, there is going to be a large purchase you’d really like to make for your home. We’re not trying to be foreboding, but consider that until you’ve lived in your home, the amount of savings you set aside for the upkeep of it is probably a rough estimate. 

Maybe you’re buying a condo, so highly expensive repairs, such as the roof, do not come out of your personal savings account. In this case, you might not require as much of a financial cushion as those with a single-family home. Similarly, the size of your home, inherited risks (i.e., the home will need new siding in the near future), and lifestyle expectations (i.e., having top-of-the-line appliances) factor in as well.

Based on these concepts, take time to consider a comfortable amount of money to be left in your savings account after you buy your home. Then, weigh your down payment options against that amount.

The Monthly Payment   

The amount of money you are willing to spend upfront and on a monthly basis go hand in hand. The more you put down, the less your monthly payment is, and vice versa. Here are two ideas to mull over as you consider the down payment vs. the monthly payment.    

1. Will your monthly expenses go up? For some first-time home buyers, this may also be their first encounter with monthly utility bills. Or maybe you want to factor in monthly homeowner convenience expenses, such as landscaping services, once you move in. If you anticipate your monthly expenses to be higher than they currently are, you can avoid too drastic of a financial lifestyle change by keeping your monthly mortgage payment lower with a larger down payment. 
2. Factor in the purchase price. The significance of a larger down payment depends on the purchase price of the home. The less the home costs, the smaller the difference. Say you are buying a condo just under the $200k range. The difference between putting 10% and 5% down amounts to a monthly savings of around $50. Some people may think, at that point, it might be nicer just to leave more money in the bank. However, if you are buying a home in the $450k range, putting 10% vs. 5% down will save you almost $150 per month. That could account for an entire utility bill, making the larger down payment option more enticing. 

Comfortability

All of the considerations we have discussed so far share a common theme: What is your comfort level? First, work with your mortgage banker to get a precise look at your options. You can review the dollar amounts, pose hypothetical scenarios, and make some preliminary fact-based decisions. But then it’s time to see how you feel about each option. 

A person’s first home purchase is rarely based on dollars and cents alone; it’s a huge life decision that encompasses the senses of security, achievement, and change. Gathering research and receiving professional advice on the pros and cons of your down payment options is the perfect start. When it comes down to the question of what you should put down, the answer is the amount that will give you confidence in your decision to purchase a home. The more confident you are, the more fun the process will be!